Monday markets with Ken Howard

Local investors shrugged off a weaker Wall Street as the Bank of Japan bond buying spree boosted sentiment.

Transcript

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TICKY FULLERTON, PRESENTER: Local investors shrugged off a weaker Wall Street as the Bank of Japan bond-buying spree boosted sentiment.

I spoke earlier to Ken Howard at RBS Morgans.

Well Ken Howard, the market made at least some headway today, but we're really back to where we were about a couple of months ago, aren't we?

KEN HOWARD, RBS MORGANS: Oh, yes, we are. But, look, it's actually very good to see our market holding this type of level. It'd been a pretty rough couple of years before we hit 5,000 points this year and a lot of that rally's been due to investors buying stocks that are delivering that reliable dividend.

It's hard to see the market give that up, but it's also hard to see the market move forward without some decent earnings growth. And we've already seen quite a few of the cyclical stories have a good run in the last six months - your Borals, your CSRs, your James Hardies in the building products space and the retailers have all had a big run too.

So, where to from here? I think the best case scenario's that we muddle sideways for another six months.

KEN HOWARD: Yes, look, that's a little unusual. I've got a couple of theories as to why. On any particular day, the international flow of funds into those big stocks can explain some or all of the difference and arguably there's a preference there in the current environment for a bit more of a diversified resource play.

So, BHP tends to be fairly concentrated there - not BHP, Rio - fairly concentrated, rather, in the iron ore space. They also have that exposure to the aluminium, and with Alcoa reporting tonight, perhaps investors are just a little bit cautious after the disastrous Alcan acquisition there for Rio.

I guess the final explanation is that in the last six months we've seen the Rio price rally $18 and then come back $18 while BHP has rallied $6 and come back $6. So, perhaps it's just the two stocks keeping some kind of level pegging.

TICKY FULLERTON: Now what about Sundance Resources? Are you expecting the last rites to be delivered tomorrow on its lapsed $1.3 billion takeover?

KEN HOWARD: Look, it certainly feels that way. The Sundance Resource is a very, very long way from the coast. It's estimated it would cost about $10 billion to connect to that potential mine to the sea. So, I suspect that this takeover offer, which was initiated back in 2011, has seen its last legs.

I mean, we'll find out for certain tomorrow. But it seems highly unlikely that the Chinese will come forward and fund a takeover bid of Sundance, even though I'm sure there would be some shareholders there in Sundance praying for it to happen.

TICKY FULLERTON: Indeed. And I see Boart Longyear has seen the departure of its CFO. Is that much of a big deal for the company?

KEN HOWARD: Look, I think it's all part of a strategic review that the company's obviously undertaking. It's a company whose share price has been under some pressure for at least 12 months. The share prices are down 75 per cent. A new CEO was appointed about a month ago and it's to be expected the new CEO will look to reinvigorate that entire team.

So I think this is just a flag that that process is underway and in the coming weeks hopefully Boart Longyear with an announcement as to who's going to fill that spot.

TICKY FULLERTON: Tough market for them. Ken Howard, thank you very much for joining us.